Microsoft's Quarterly Results Dominate Week

Microsoft saw strong business software but soft Windows numbers last quarter. Analysts also made rather optimistic predictions about the company's Windows Phone.

Microsoft's
quarterly results dominated its week.
Nothing in
those results proved entirely unexpected: Microsoft's aspirations in the realm
of entertainment, meaning its Xbox 360 and Kinect hands-free controllers,
continued to sell in healthy numbers. The company's business and server
software likewise continued to do good business. All told, quarterly revenue
topped $20.89 billion, a year-over-year increase of 5 percent, with net income
of $6.62 billion.

That being
said, Microsoft also saw its all-important Windows revenue dip some 6 percent
from the prior period, to $4.74 billion, thanks in large part to softening PC
sales (a situation exacerbated by flooding in Thailand, which curbed the global
supply of hard drives). At the same time, Windows sales in emerging markets
continue to grow faster than those in developed markets, which hints that the
operating system still has room to increase its customer footprint despite the
525 million licenses already sold.

Microsoft
executives used a Jan. 19 earnings call to tout the company's cloud-based
productivity initiatives, including Office 365. "Today, more than 100,000
businesses have made the commitment to our online services," Peter Klein,
Microsoft's chief financial officer, told media and analysts listening on the
call. Despite the increased penetration of Office 365 and Windows Azure among
customers, however, those cloud initiatives have yet to generate revenue on the
scale of Microsoft's traditional software such as Windows and Office.
Expanding its
cloud reach isn't Microsoft's only big initiative for 2012: The company is
betting that Windows 8, its upcoming operating system due in the latter half of
2012 (with the beta slated for release in February) will position it well to
not only hold onto its longstanding market share in traditional PCs, but also
break new ground in tablets. To the latter end, a document posted on a
Microsoft Website-broken down in a posting on Rafael Rivera's Within Windows blog (not affiliated with
Microsoft)-details Windows 8's minimum hardware requirements for tablets and
convertible PCs.
Those
requirements include at least 10GB of free space, WLAN and Bluetooth 4.0 + LTE (Long-Term
Evolution) for networking, minimum 1,366x768 screen resolution, at least one
USB 2.0 controller and exposed port, a 720p camera, and a combination of gyroscope,
three-axis accelerometer and magnetometer.

"These systems
are primarily focused on consumption scenarios such as Web browsing, media, and
casual gaming," read an accompanying note in the Microsoft document. "It is
likely that this form factor will also emerge in the enterprise as a
productivity PC." In light of that, "these systems are optimized for consumption
and light productivity. Requirements are based on these usage patterns."
Microsoft is
also looking to its Windows Phone franchise to gain further market share in
2012. Despite the software platform's middling market presence at the moment,
research firm iSuppli issued a research note this week suggesting it would take
second place within the next three years, placing ahead of iOS but behind
Android.
According to
the firm, Nokia would be responsible for the lion's share of Windows Phone
devices sold, although its share would level off as more manufacturers make
increasingly robust plays within the ecosystem. "Combined with Nokia's efforts
to drive the development of the Windows Phone ecosystem," Wayne Lam, iSuppli's
senior analyst for wireless communications, wrote in a Jan. 19 statement, "the
Lumia 900 and its successors will help Microsoft to reclaim its No. 2 ranking
in smartphone operating system market share by 2015."
All told,
Microsoft's quarterly numbers highlight the company's solid position heading into
2012, but its ultimate success will depend on Windows 8, Windows Phone, cloud
products and other initiatives for which, obviously, precious little data
exists at this time.
Follow Nicholas Kolakowski on Twitter

Nicholas Kolakowski is a staff editor at eWEEK, covering Microsoft and other companies in the enterprise space, as well as evolving technology such as tablet PCs. His work has appeared in The Washington Post, Playboy, WebMD, AARP the Magazine, AutoWeek, Washington City Paper, Trader Monthly, and Private Air. He lives in Brooklyn, New York.